The Lowdown on Upcoding—What It Is & How It Works

Upcoding can be a lucrative form of health care billing fraud. Image © PM Images/Iconica Collection/Getty Images

What Is Upcoding?

Upcoding is a type of health care billing fraud. It happens when health care providers charge for more expensive health care services than they actually provided.

Imagine you went to your local Honda dealer and bought a Honda Civic. Now imagine that you were billed for a Honda Accord. Your Honda dealer just upcoded your purchase.

No doubt, you would notice upcoding at a car dealership because you’re the one who’s getting the car as well as paying the bill.

Upcoding isn’t as obvious in health care because the person receiving the service, the patient, isn’t usually the one who’s paying the bill. Instead, the patient’s health insurance company, Medicare, or Medicaid is paying the bill. This disconnect between the shopper and the payer makes it easier for upcoding to go unnoticed.

How Upcoding Works In Health Care

Your provider submits a series of medical billing codes to your health insurance company with each claim. Providers are paid based on the codes they submit with the claim; some codes pay a little, some codes pay a lot. If the provider submits codes that don’t accurately show the service provided, and those codes result in a higher payment than the accurate codes would have resulted in, the provider has upcoded.

How Upcoding Works in Hospital Bills

Hospitals submit a DRG code describing your hospitalization, diagnosis, any surgeries you had while hospitalized, and whether or not you had any additional medical problems (comorbid conditions) or complications while you were hospitalized.

Here is an example of upcoding a hospital DRG:

  • DRG 469 is the appropriate DRG for a patient who had hip replacement surgery and who had a major complication or comorbid condition while they were hospitalized.
  • DRG 470 is the appropriate DRG for a patient with the same hip replacement surgery who didn’t suffer any big complications or comorbid conditions.
  • DRG 469 pays several thousands of dollars more than DRG 470 pays.

The hospital submits a claim for DRG 469, saying you had a hip replacement and were treated for pneumonia while you were recovering from your hip surgery. The pneumonia is a major comorbid condition and qualifies the hospitalization to fall under the more expensive DRG 469.

However, if your “pneumonia” was actually bronchitis, then you didn’t have a major comorbid condition. The addition of the diagnosis code for pneumonia changes the DRG from what it should have been, DRG 470, to the higher paying DRG 469. Medicare or your health insurer pays thousands of dollars more than it should becuase the hospital upcoded your bronchitis as pneumonia, and upcoded your hospital stay from DRG 470 to DRG 469.

Other ways to upcode a hospital bill include miscoding a procedure so that something that shouldn’t count as a surgery gets coded as a surgery. Additionally, claiming an inpatient hospitalization when the patient should have been on outpatient observation status can be considered a type of upcoding since reimbursement for outpatient care is generally less than it is for inpatient care.

Learn more about this observation vs. inpatient status problem in “Hospitalized in Observation Status? You’ll Pay More.”

How Upcoding Works in a Doctor’s Office

Your doctor’s office submits CPT codes with your claim describing the nature and complexity of your office visit. Longer visits that address extensive problems and require complex decision making pay more than brief visits for simple, easy to diagnose problems. Your doctor has upcoded if she submits a code for an extensive, complex office visit when what you actually had was a brief, simple visit. 

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